OSD

Question 1

Optional Standard Deduction

Answer 1

in lieu of the itemized deductions including NOLCO allowable under the NIRC and special laws

Question 2

Who can claim OSD?

Answer 2

GR: all taxpayer who are subject to tax on taxable net income
EXC:
a.) NRA-ETB
b.) Taxpayers mandated to use itemized deductions

Question 3

Who are mandated to use itemized deductions?

Answer 3

1. Corporations:
   a. ) Exempt GOCCs and non-stock, non-profit corporations with no taxable income
   b. ) Those with income subject to preferential/special tax rates
   c. ) Those with income subject to regular corporate income tax and special/preferential tax rate
2. Individuals:
   a. ) Exempt individuals under the NIRC and special laws with no other taxable income
   b. ) Those with income subject to special/preferential tax rates
   c. ) Those with income subject to regular income tax and special/preferential income tax

Question 4

Should the option to claim OSD signified in the income tax return?

Answer 4

Yes, otherwise itemized deduction is presumed. The option to elect must be made in the first quarter return and it shall be irrevocable in the taxable year for which the return is made. Shifting between OSD and itemized during the taxable quarters of the taxable year is not allowed.

Question 5

Percentage of Optional Standard Deductions

Answer 5

1. Individual taxpayers - 40% of total sales/revenues/receipts/fees
   a. ) Under accrual basis - 40% of gross sales
   b. ) Under cash basis - 40% of gross receipts
   c. ) Services under accrual basis - 40% of gross revenue
2. Corporate taxpayers - 40% gross income

Question 6

What is the main difference between individual OSD and corporate OSD in terms of what it replaces?

Answer 6

Individual OSD replaces COS, regular allowable itemized deductions, special allowable itemized deductions, and NOLCO. While corporate OSD replaces all except COS.

Question 7

Non-operating income

Answer 7

1. Gains from dealings in properties
2. Distribution from a general professional partnership, exempt co-ownership and taxable estates or trusts
3. Casual active income
4. Passive income or those that are not connected to the primary or secondary activities of the business such as:
   a. ) interest income on advances to employees
   b. ) investment income subject to regular tax

Question 8

OSD for General Professional Partnership

Answer 8

A general professional partnership is not a taxable entity and viewed as pass-through entities where income is ultimately taxed to partners.

Question 9

Determination of net income of a GPP

Answer 9

The net income of the partnership shall be computed in the same manner as corporation. GPP can choose either the itemized deduction or the optional standard deduction in computing its distributable net income. The allowable deduction for a GPP electing to deduct OSD shall be 40% of gross income similar to the OSD allowed for corporations.

Question 10

When to indicate the option of OSD?

Answer 10

For individual taxpayers, the option to use OSD can be indicated only in the annual income tax return since quarterly income tax return are mere estimates of gross income and deductions.

For corporate taxpayers, the option to use OSD for the taxable year must be indicated in the first quarter return and shall be applied to all subsequent quarters and in the annual return.

The option to use either OSD or itemized deduction is irrevocable only for the current year it is made.